On April 15, the Sienese bank will become the first Italian company to appoint a new board and CEO under regulations governing how outgoing directors can propose their successors.
Rather than providing clarity, the criteria have fueled investor uncertainty in a vote that pits the MPS board against CEO Luigi Lovaglio, who is seeking a new mandate against a rival candidate backed by the board.
The legislation allows outgoing boards to propose a full slate of directors upon which shareholders vote en bloc.
"A TOOL FOR INSTITUTIONAL PARALYSIS"
This slate-based voting system distinguishes Italy from countries like Great Britain and the United States, where investors vote on each individual board nomination.
However, the approval of the board's list in the first ballot is not final: each candidate must then be confirmed through a second, individual vote.
"Italy already had some of the most complex rules in the world for selecting board members," said Lukas Plattner, partner at law firm Advant Ntcm.
"Now we have the absurdity of regulating how an outgoing board presents its own list - a mechanism that investors, especially foreign ones, find almost impossible to comprehend."
That second vote, he added, incentivizes "punitive and disruptive behavior, transforming a governance tool into a tool for institutional paralysis."
AVOIDING INDEFINITE DIRECTOR RENEWALS
Proxy adviser Institutional Shareholder Services (ISS) highlighted the system's complexity by supporting the MPS board's list while simultaneously urging investors to reject individual candidates - including the chairman and the head of the nomination committee - for "poor succession planning."
The Treasury did not respond to a request for comment.
The government has stated that the rules aim to prevent directors from being reappointed indefinitely without shareholder oversight.
The board list regulation is part of a broader reform of Italian corporate and financial law, initiated in 2024 and now nearing completion.
The changes have drawn criticism from investor groups such as the International Corporate Governance Network (ICGN), which represents investors with over $90 trillion in assets, arguing that the rules risk undermining market confidence.
In March, Italy sought to appease investors by amending a provision on enhanced voting rights but ignored calls to change the board list system, which governance experts have termed an "aberration" during academic conferences.
While it is still early to assess the overall impact of the reforms on Italian capital markets, the MPS vote will provide an initial indication of the distortions the system may produce.
Confusion was evident among investors at a conference in London last month, when a fund manager asked the MPS CEO to explain "to a non-Italian" the chain of events involving the bank.
RULES RISK PRODUCING LOWER-QUALITY BOARDS
Governance experts warn that the new regulations risk producing more fragmented and lower-quality boards.
Headhunters argue that the requirement to nominate one-third more candidates than available seats will deter applicants, potentially narrowing the pool of experienced professionals reluctant to expose themselves to the risk of public rejection.
Simulations conducted by Fingov, the corporate governance research center at Università Cattolica, show that the rules can lead to situations where a list with fewer votes than the board's slate ends up securing more seats.
"The board list system is a global anomaly and can produce unpredictable results," said Fingov director Massimo Belcredi, noting that governance experts did not expect any company to utilize it.
"What happens now at MPS is entirely unpredictable," he added.
(Translated by Claudio Leonel Piacquadio, editing by Stefano Bernabei)
